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Lessons of Empire: India, 60 Years After Independence

by Nick Robins and Pratap ChatterjeeSpecial to CorpWatch
August 14th, 2007

Cartoon by Khalil Bendib

Two villagers who left their mud and wood huts last month to travel to London -- Kumuti Majhi and Phulme Majhi -- were a stark contrast to the 212,000 wealthy Indians who visited Britain last year on shopping expeditions where they outspent Japanese tourists. The villagers' mission, rather than the acquisition of designer clothing or the latest electronics, was to try to save the livelihoods of their small tribe that grows millet, fruit and spices in the lushly-forested Niyamgiri hills in eastern India.

On August 1, 2007, the Majhis spoke out at the annual general meeting of Vedanta Resources PLC, a British multinational that is poised to dig a new bauxite mine that threatens the village of Jaganathpur. While Vedanta is incorporated in Britain, it is owned by Anil Agarwal, the world's 230th richest man according to the Forbes 2007 list, a former scrap metal merchant who was born in eastern India. (See Vedanta Undermines Indian Communities, by Nityanand Jayaraman.)

The timing of the Mahji’s trip to Britain and the protests back in India have a much wider significance. 2007 is marked by a trinity of anniversaries that recall India’s conquest, first struggles and eventual liberation from British rule. On August 15th, India celebrates 60 years of independence. Earlier in the year, commemorations took place for the 150th anniversary of the great rebellion against British rule in 1857 -– known in the UK as the ‘mutiny’ and on the sub-continent as the ‘first war of independence.’ This trinity of historic milestones is completed with the 250th anniversary of the pivotal battle of Plassey in June 1757, when the private army of Britain’s East India Company (which was often referred to simply as the “Company”) defeated the forces of the Nawab (ruler) of Bengal (in eastern India), ushering in first corporate and then imperial domination.

It is this legacy of collusion between global corporations and the expansionist state that makes this year so poignant and full of enduring lessons. Its history provides timeless lessons on how (and how not) to confront corporate power with protest, litigation, regulation, rebellion and, ultimately, corporate redesign. Many of today’s corporate struggles are prefigured in the resistance to the Company’s rise to power. Again and again, "the return of the East India Company" is used as a catch-phrase to describe the recent influx of multinationals into India, whether global mining corporations or foreign business more generally.

And the Mahji’s journey follows in the footsteps of others who have travelled to London to seek redress from corporate abuse. In August 1769, for example, two Armenian merchants, Johannes Rafael and Gregore Cojamaul arrived at London’s docks. The two were rich men and had made their fortunes in India’s most prosperous region, Bengal. However, Rafael, Cojamaul and two others had been summarily arrested by the Company’s chief executive in Bengal, Harry Verelst, who then held them for more than five months under guard. When they were released, they found that the Company had pressured its puppet, the Nawab of Bengal, to change the rules of the game and ban all Armenians from the Bengal market. Sailing around the world to where the Company was headquartered, Rafael and Cojamaul appealed to its board of directors, complaining of their “cruel and inhuman” treatment.

The striking continuity of protest over the centuries is largely buried in today’s celebration of India's surge to economic prominence. Tata’s acquisition of Anglo-Dutch steel group Corus earlier in the year has been seen by many as symbolizing the end of Britain’s era of industrial supremacy. Tata had already bagged the UK’s iconic tea blend, Tetley, and its automotive arm may be lining up a bid for Land Rover. Writing recently in the Financial Times, Malvinder Hohan Singh, the chief executive of Indian pharmaceutical company Ranbaxy, caught the mood: "500 years ago, a company was formed in London that directly led to British rule in India [and] there appears to be some concern that there is evidence of a reverse trend."

This theme of reversal has also influenced India's popular media, most strikingly in a TV advertisement for Rajnigandha pan masala. Set in London, the ad shows an Indian tycoon stopping his car in front of the East India Company's headquarters and announcing to his secretary that he wants to buy the firm: "They ruled us for 200 years, and now it's our turn."

But while the media celebrates India's rise as the new economic emperors, they would also do well to reflect on the history of the world's first major multinational.

Down with the East India Company!

Established on a cold New Year’s Eve in 1600, Britain’s East India Company is unarguably the mother of the modern corporation. In a career spanning almost three centuries, the Company bridged the mercantilist world of chartered monopolies and the industrial age of corporations accountable solely to shareholders. The Company’s establishment by royal charter, its monopoly of all trade between Britain and Asia and its semi-sovereign privileges to rule territories and raise armies certainly mark it out as a corporate institution from another time. Yet in its financing, structures of governance and business dynamics, the Company was undeniably modern. It may have referred to its staff as servants rather than executives, and communicated by quill pen rather than email, but the key features of the shareholder-owned corporation are there for all to see.  

Beyond its status as a corporate pioneer, the sheer size of its operations makes the Company historically significant on a global scale. At its height, the Company’s empire of commerce stretched from Britain across the Atlantic and around the Cape to the Gulf and on to India. From its headquarters at East India House on London’s Leadenhall Street, the Company managed an extensive import-export business. Trading posts were established at St. Helena in the mid-Atlantic, where Napoleon drank Company coffee in exile. ‘Factories’ were also established at Basra and Bandar Abbas in the Middle East. But it was in India that the Company’s impacts were most profound. Some of India’s major cities grew on the back of the Company’s trade, not least Bombay (Mumbai), Calcutta (Kolkata) and Madras (Chennai). Beyond these coastal ports, the Company established a huge land empire, first as an opportunistic quest for extra revenues and later as an end in itself.

Always with an eye to the share price and their own executive perks, the Company’s executives in India combined economic muscle with its small, but effective private army to establish a corporate state across large parts of the sub-continent. Plassey was the turning point when the Company’s forces defeated the Nawab of Bengal and placed its puppet on the throne. This is often regarded as the contest that founded the British empire in India. But it is perhaps better viewed as the Company’s most successful business deal, generating a windfall profit of £2.5 million for the Company and £234,000 for Robert Clive, the chief architect of the acquisition. Today, this would be equivalent to a £232 million corporate windfall and a cool £22 million success fee for Clive.

Yet, the Company’s footprint did not stop there, but stretched on to South-East Asia and beyond to China and Japan. Penang and Singapore were both ports purchased by the Company in an age when territories could be bought and sold like commodities. And if India was the site of the Company’s first commercial triumphs, it was in China that it made its second fortune. The Company’s ‘factory’ at Canton was the funnel through which millions of pounds of Bohea, Congo, Souchon and Pekoe teas flowed west to Britain, Europe and the Americas. In the other direction came first silver and later a flood of Indian-grown opium, smuggled in chests proudly bearing the Company chop (or logo).      

From the beginning, the Company’s monopoly control over trade with Asia had been disputed by its competitors back in Britain. But it was with the Company’s acquisition of unprecedented economic power following Plassey that it came to be seen as a more structural threat to political liberty back home. For the editor of London’s Gentleman’s Magazine, by April 1767 it had become the ‘imperious company of East India merchants.’ For this normally sedate magazine, the prospect was bleak and boiled down to “whether the freedom or the slavery of this island will result.” Not surprisingly, perhaps, this fiery article was concluded with a defiant cry -- “down with that rump of unconstitutional power, the East India Company.” Six years later, as American patriots organised to counter the threat of the Company’s newly won monopoly of the Atlantic tea trade, Rusticus’ writing in east coast newspaper, The Alarm, also made clear his opposition: “Their conduct in Asia, for some Years past, has given simple Proof, how little they regard the Laws of Nature, the Rights, Liberties or Lives of Men.” Looking back, the uprising that eventually led to America's independence was sparked as much by hostility to corporate monopoly as it was to taxation without representation.

The Company’s malpractice also featured heavily in Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. Written in the wake of the Company’s speculative ‘Bengal Bubble,’ Smith dissected the corporation as an institution and evaluated the factors that led to its own particular crisis. Uniquely, Smith was emphatic in downplaying the actions of individuals as the root cause of the problems. ‘I mean not to throw any odious imputation upon the general character of the servants of the East India Company,’ he wrote, stressing that ‘it is the system of government, the situation in which they are placed, that I mean to censure.’ The problem was one of corporate design.

For Smith, the Company held the secret to one of the greatest puzzles of his time: explaining the distribution of benefits from the rapidly increasing integration of the world economy. “The discovery of America, and that of a passage to the East Indies by the Cape of Good Hope,” argued Smith “are the two greatest and most important events recorded in the history of mankind.” Smith’s belief was that the full potential of this dramatic opening had not been realized, owing to a combination of colonies and corporations. For the natives of both the East and West Indies, “all the commercial benefits have been sunk and lost” in a series of “dreadful misfortunes.” In Asia, the agents of this pain were the Dutch and British East India Companies, monopoly corporations that he condemned as “nuisances in every respect.” Not only did people pay for "all the extraordinary profits which the company may have made," argued Smith, but they also suffered from "all the extraordinary waste which the fraud and abuse, inseparable from the management of the affairs of so great a company, must necessarily have occasioned." Smith was certainly an enemy of the over-mighty state, but he was also opposed to the over-mighty corporation, arguing strongly against the market power of monopolies and the speculative dynamics of stock-market listed firms.

Perhaps what infuriated the Company’s contemporaries most through the seventeenth, eighteenth and nineteenth centuries was its impunity, its ability to shrug off the consequences of its actions. For an insidious corollary to the Company’s speculative drive for market dominion was its willingness to engage in immense crimes safe in the knowledge that domestic and international remedies were not in place. A large part of the problem lay in the legal void of the time, with courts in both Europe and Asia wholly ill-equipped for bringing corporations and their executives to account. This did not stop the Company’s contemporaries from trying, most notably Adam Smith’s friend, Edmund Burke.

It was Burke who first exposed how the Company had ‘radically and irretrievably ruined’ India through its ‘continual Drain’ of wealth -- a phrase that would haunt the next 150 years of British presence in India. In 1783, Burke introduced to make the Company accountable to the British Parliament, arguing that its corporate charter carried intrinsic duties: "this nation never did give a power without imposing a proportionable degree of responsibility." It is said that when one of the Company’s oldest Directors, William James, read  Burke’s bill, he died of shock. When Burke's measure failed as a result of an unholy alliance of Court and City, he took up a hopeless struggle to impeach the Company's most senior executive in India, the former governor-general, Warren Hastings. Burke was merciless in his critique, on one occasion describing how Bengali women had been violated by the Company’s tax collectors: "They were dragged out, naked and exposed to the public view, and scourged before all the peoples they put the nipples of the women into the sharp edges of split bamboos and tore them from their bodies." For seven long years, the trial continued, ending as expected with a grateful House of Lords acquitting Hastings of "high crimes and misdemeanours."

To get the founder of liberal economics and the father of modern conservatism both struggling to tame the Company says something for the bipartisan threat that the corporation posed to Britain during the Enlightenment. And Smith and Burke were joined by many others -- poets, playwrights and pamphleteers -- who expected future generations to take a similarly hard look at the Company's performance. "Historians of other nations (if not our own)," wrote the poet Richard Clarke in 1773, "will do justice to the oppressed of India and will hand down the Memory of the Oppressors to the latest Posterity." In the introduction to his long satire, The Nabob, or Asiatic Plunders, Clarke urged his countrymen "to perpetuate an honest indignation against these enemies of mankind."

A Legacy of Loot

Yet, in spite of Smith's profound analysis and Burke's passionate rhetoric, imperial interests won out against principle, consigning India to an empire of scorn and extraction. The drain of wealth was simply too attractive to renounce -- even though one lone MP did call for Britain to withdraw from India back in the 1780s. Combining commercial domination with control over Bengal’s tax system, the Company was able to restructure the richest province of what had once been the Mughal Empire for its own ends. Textiles were shipped back to London, paid for by Bengal’s own taxes, and peasants were forced to grow opium to be sold exclusively at below-cost prices to the Company, who then engineered its illegal export into China. If force and fraud were the tools by which the Company turned the terms of trade in its favour in India, it was opium that eventually had the same effect with the Qing Empire. For millennia, Europe had exported bullion to Asia in return for luxury goods, and when the Company was formed in 1600, Britain accounted for a paltry 2 percent of global output, compared with India's 22 percent and China’s 29 percent. By the time Britain finally departed India's shores three and a half centuries later, its national income was more than 50 percent greater than that of its former colony. And it was the East India Company that acted as one of the chief agents in engineering this great switch in global development.

"What is happening today with the rise of India and China is not some miraculous novelty -- as it is usually depicted in the Western press,"  writes historian William Dalrymple in the August 2nd issue of Time magazine, "so much as a return to the traditional pattern of global trade in the medieval and ancient world, where gold drained from West to East in payment for silks and spices and all manner of luxuries undreamed of in the relatively primitive capitals of Europe."

Centuries after the Company's demise, its physical presence in India continues to impress: Its remains stretch from ruins of its fort at the pepper port of Tellicherrry on the west coast, to the grandeur of Chennai's Fort St. George on India's eastern shore. The mark is greatest in Kolkata, a "company town" of immense proportions.

But the Company's powerful legacy also endures in India's public memory as an inspiration to the nationalist struggle for independence. For India's first prime minister, Jawaharlal Nehru, the Company lay at the root of the oppression that he fought. "The corruption, venality, nepotism, violence and greed of money of these early generations of British rule in India," Nehru thundered in The Discovery of India, "is something which passes comprehension." Looking back at the Company's conquest of India, Nehru noted "it is significant that one of the Hindustani words which has become part of the English language is loot."

Traditions of Domination and Resistance

Today, after a decade of economic liberalization in India, this critical analysis continues to lie close to the surface. For many Indians, the Company's story has two profound morals: first, that multinational companies want not just trade, but power, and second, that division and betrayal among Indians enables foreign rule. The East India Company was a profit-making company that generated not only great wealth, but immense suffering, most notably in the horrific Bengal famine of 1769-70. Just as corporations today should be judged by the impacts of their core business rather than their often peripheral donations to cultural events, so the East India Company has to be assessed on the basis of its underlying activities rather than the occasional philanthropy of its executives.

Far from being a dusty relic, the East India Company exemplifies the constant battle within corporations between the logic of exchange and the desire for domination. Two centuries on, it demonstrates that the quest for corporate accountability is a perpetual exercise in directing the energies of merchants and entrepreneurs so that their private passions do not undermine the public interest. The lesson from Smith is the imperative to keep corporate size in check while globalization is fostering ever-increasing commercial concentration. And from Burke, we can take the essential importance of placing corporate conduct within a framework of justice, establishing legal mechanisms to hold corporations to account.

At its heart, the Company's business model combined speculation at home with aggression abroad. It was Karl Marx, writing in the 1850s as the Company limped towards its end, who pithily captured the drive that lay behind its remorseless rise to power. It was not any imperial project that had led it on, he wrote, but rather the Company had "conquered India to make money out of it."

Just as in the days of the Company, India remains the place where corporate practice meets strong resistance, such as ongoing protests to bring justice for the thousands who were poisoned or killed in the 1984 deadly gas leak at Union Carbide's Bhopal factory, or the movement in the 1990s to prevent Enron's Dabhol natural gas power project in Maharashtra from going on-line.

Challenges to multinational projects continue across the country today: In March 2007, after police shot to death 14 people protesting against investment plans of the Salim Group of Indonesia, the chemical hub in West Bengal Nandigram was cancelled. Nor is it just foreign companies that have faced fierce resistance. Protesters have targeted India-based billionaires including the Tatas who planned to set up a major car factory in Singur, West Bengal.

And like the Company, corporate impunity remains a constant concern. Roger Moody, a British campaigner from Mines and Communities, notes that Vedanta's subsidiary, Sterlite Gold, stands accused of a raft of criminal acts in Armenia, including mining more gold than permitted by the government, deliberately under-valuing its reserves, and failing to properly dispose of mine wastes. Last November, in Zambia, Vedanta was indicted for willfully using a defective pipeline to dispose of highly toxic tailings from the country's largest copper mine, KCM, which it purchased two years earlier. It had also been constructing Zambia's premier copper smelter without obtaining official permission from the Zambian government.

Last week, the Majhis took home a small concession from London. A Vedanta spokesperson said the company's chairman, Anil Agarwal, would be "very happy" to visit the controversial area with the villagers. But, the villagers understood that would not be enough. "We are not going to allow this [destruction] to happen," Kumuti Majhi told a news conference in New Delhi. "We have been living in this mountain range for generations, and we worship Niyamgiri as a living god."

Warm words were equally insufficient for Rafael and the other Armenian merchants back in the time of the East India Company. When the Company’s directors arrogantly brushed them aside, they went to court, suing the Company’s chief executive in the region, Harry Verelst, for damages. An intense legal battle then unfolded with claim and counter-claim lasting until 1777, when the courts found Verlest guilty of “oppression, false imprisonment and singular depredations.” The Armenians won a total of £9,700 in compensation -- over £800,000 in today’s money. Thousands of miles away from the scene of the crime, the principle of extraterritorial liability for corporate malpractice had been established in Georgian London.

Will Vedanta and others repeat the excesses of the British East India Company, or can systems of accountability finally be established that protect the rights of the weakest -- just as Burke hoped for centuries ago? Much depends on what investors, regulators and society learn from the lessons of the past.

Corporations, like people, have life spans. The British East India Company is long dead, but the quest for wealth it embodied endures. So, too -- as evidenced by popular movements and persistent campaigners like Kumuti Majhi and Phulme Majhi -- does resistance.

* Nick Robins is author of The Corporation that Changed the World: How the East India Company Shaped the Modern Multinational (Pluto, 2006)